Reason Foundation

Reason Foundation

Should the Feds Subsidize Flood Insurance?

Leonard Gilroy
September 6, 2005, 7:38am

In the aftermath of Hurricane Katrina, the New York Times' John Tierney opines on the need to get the Feds out of the flood insurance business: It's unfortunate that it takes a devastating event like Katrina to bring this issue to light, but a debate on the wisdom of federally-subsidized flood insurance is long overdue. From my own stint as a New Orleans homeowner earlier this decade, I recall that my flood insurance premium was a mere pittance of my total home insurance bill -- perhaps 10-15%, if that. I always found it odd that the subtle message to homeowners was, "don't worry, the Feds will bail you out in a catastrophic flood." So I agree with Tierney that the perverse incentive structure created by federally-subsidized flood insurance dampens local public demand for better protection systems. There's just no incentive to get your feathers ruffled about such matters when the costs of individual location decisions are dispersed among federal taxpayers-at-large. Let the debate begin.

Leonard Gilroy is Director of Government Reform

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